Trade Finance Solutions for SMEs
Trade finance exists to help mitigate the considerable financial risk SMEs face in the manufacturing industry. The welfare of SMEs is incredibly important for the wider economy, as around 90% of businesses worldwide are SMEs, and they are responsible for more than 50% of employment, per The World Bank. Large buyers in the U.S. take an average of 54.7 days to pay their invoices, and another chunk of buyer payments are considered late. This has a huge negative impact on a manufacturer’s cash flow and could create a domino effect that threatens their solvency, as 82% of SMEs fail due to poor cash flow management.
Once a manufacturer sends out a consignment, they provide the trade finance company with the invoice, and the trade finance company immediately pays them the amount, eliminating the waiting period for the money. The trade finance company will then collect the payment from the buyer. Credit protection is also included in many trade finance packages, ensuring suppliers get paid even if their customers become insolvent.
By using trade finance, manufacturers can bridge the gap in their working capital cycles, allowing them to support long payment terms with their buyers, as well as meet their financial obligations, such as paying their suppliers on time.
Solving cash flow issues can have a huge beneficial effect on manufacturers’ growth. Having access to the money immediately will allow them to take more orders, grow their production capabilities, and expand into more markets. Trade finance also provides peace of mind to SME manufacturers, as they don’t need to worry about the buyer becoming delinquent on their payments or unable to pay if insolvency occurs. SMEs operate on a tighter budget than large companies, and missed payments from buyers can be devastating to them.
Trade finance providers like Tradewind act as an alternative source of collateral-free financing by buying their receivables and providing cash in advance. Founded in 2000 and headquartered in Mönchengladbach, Germany, Tradewind has over 20 years of experience in trade finance and has offices in more than 12 countries. It creates tailor-made trade finance solutions for clients and ensures that it can meet their unique needs.
The company does in-depth research on potential buyers, helping client manufacturers understand the companies they are working with. Using its connections in various industries, Tradewind conducts due diligence and risk assessment on buyers to determine if they are financially sound and can pay for their orders.
Aside from facilitating SMEs’ cash flow and enabling them to grow their businesses, Tradewind also places importance on sustainability. Twice a year, it sends its client managers to visit clients’ facilities to see whether they uphold their claims of fair business practices, such as complying with labor and employee welfare laws and adhering to environmental standards.
“SMEs are an extremely vital part of the economy, so it is our mission to provide them with reliable financial support and enable them to plan their long-term business goals,” says Peter Maerevoet, Tradewind CEO Asia. “Over the years, we’ve seen how trade finance has made a positive impact on the financial health of companies and on the people that make them up. This is especially true for the SME community we serve. By combining our global scale with local expertise across key sectors, we can serve our clients with confidence while focusing on establishing a long-term relationship with them and helping with their future financial needs.”
Analyst comment
Positive news. Trade finance helps mitigate financial risk for SMEs in manufacturing. It improves cash flow, supports growth, and provides credit protection. Trade finance provider Tradewind offers tailored solutions, conducts due diligence, and prioritizes sustainability. The market is expected to see increased demand for trade finance and benefit from the growth of SMEs.
